After the 2008 death of the founder of Carl’s Jr. — the ubiquitous California fast-food restaurant chain — the Orange County Register published an obituary that captured the one-time spirit of the state: “Carl Karcher, the Ohio farm boy with an eighth-grade education who turned his $326 investment in a hot dog stand into a multimillion-dollar fast food empire, died Friday afternoon. He was 90.” For decades, this was a place where anyone could earn a fortune.
Earlier this week, Carl’s Jr.’s parent company (CKE Restaurants) announced it would relocate from Santa Barbara County to Nashville, Tennessee. The company issued a bland statement. It is “re-franchising” many of its company-owned locations. “As such, early next year we will be consolidating our Carpinteria and St. Louis corporate offices in Nashville, which is centrally located and is one of the markets where we have retained company-owned restaurants.”
In 2011, I reported on a California Chamber of Commerce event, where CKE Chief Executive Officer Andrew Puzder “complained about the permitting process here, where it takes eight months to two years to open a new restaurant compared to an average of 1 1/2 months in Texas.” Then there are all those lawsuits, and work rules that force companies to pay overtime based on daily, rather than weekly, hours. He was mulling a move to Texas then.
Granted, CKE is moving its headquarters, not its restaurants. But the point is well-taken. There is a cottage industry here that denies industrial-era work rules and a maddening regulatory process make any difference to business owners. The idea that there’s a business exodus is just right-wing nonsense, they insist, and they point to research purportedly showing that businesses aren’t really leaving.
Not many big brick-and-mortar businesses shut down and rebuild elsewhere. But companies do shift operations, build their new plants in other states, or just never get started. Corporate types don’t like to blame state officials publicly — that invites pushback. But at one business-closing press event I attended in a Los Angeles area industrial park, departing owners compared notes about the best places to move outside of California.
However much CEOs would rather live in Malibu than Fort Worth, Texas, they’re not usually apt to actually build a manufacturing plant in Los Angeles or Santa Barbara, despite what liberal economists and reporters might argue.
One widely discussed 2014 article suggested that higher tax rates are, the harder we all will work. “Some research into tax rates indicates that high rates have the opposite effect: People may work harder, trying to make more money to achieve a desired after-tax income and may slough off if tax rates are lowered,” wrote David Cay Johnston in the Sacramento Bee. Work makes us free, I suppose.
“California proves every day that conservative economic theories are s[–]t. Every. Single. Day,” wrote the left-wing Daily Kos, noting that California grows even though it ranks at the bottom of business-climate surveys. I give Kos credit for using a word often ignored: despite. California remains a global economic leader “despite its high cost of living, taxes and regulations,” he added. But imagine the growth if it had a sane economic policy.
That high cost of living, by the way, is largely the result of government land-use restrictions that artificially drive up the cost of developable land. It’s also why California has the highest poverty rate in the nation under the U.S. Census Bureau’s new formula. You’d think folks who claim to care about the poor might think more deeply about this.
A recent study found about 10,000 California businesses “disinvested” in the state over seven years, meaning they moved, closed down, or shifted jobs out of state. Business researcher Joseph Vranich relied on public records. His report includes a long list of companies and what happened to them. He only included “disinvestments” clearly tied to the business climate.
Officials react as Gov. Jerry Brown did when former Texas Gov. Rick Perry ran an ad campaign luring businesses to the Lone Star State. “It’s not a serious story, guys,” Brown said during a speech. “It’s not a burp. It’s barely a fart.” Vranich’s report was a response to Brown’s “business czar,” who in 2012 said: “[T]here is no data anywhere where you can find numbers of companies that have either entered or left this state. It’s just not kept… so there is no justification for the statement that there is this mass exodus from the state of California.”
The resulting data was voluminous. But it was barely a burp in the state Capitol. Currently, the only point of contention is between the Democratic governor and the Democratic Legislature. They both want to spend more on programs, but the former wants to be sure to have enough cash when there’s an eventual recession. The November election is likely to see union-backed voter initiatives to raise taxes and spend more. How can they hurt, given we’ll all be good oxen and pull harder?
This week, legislators are introducing a bill to allow independent contractors to collectively bargain (through a new type of association) with Uber and other companies in the sharing economy. Brown and legislators often point to Silicon Valley’s enduring growth as evidence that California remains an economic hub. Yet this looks like a direct assault on the Golden State’s golden-egg-laying goose, not that state leaders will get it.
They can argue high taxes, regulation, and unionization are good for the economy. But if you were an Ohio farm boy today with $300 in your pocket, would you try to make your fortune in California or, say, Tennessee?
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